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October 01, 2018 | Posted in:

All About the Student Loan Interest Deduction

Although recent tax legislation has eliminated or scaled back many prized deductions for 2018 through 2025, it didn’t touch the deduction for student loan interest. So the usual questions remain: Who can claim the deduction and for how much?

Student loan interest deduction basics

For starters, the deduction for student loan interest is claimed “above the line,” so it’s available to both itemizers and taxpayers who take a standard deduction. The annual deduction is limited to no more than $2,500 of the interest paid for qualified expenses like tuition and fees, room and board, books, supplies and equipment, and other necessary expenses (e.g., transportation).

The loan can be for your own education, as well as for your spouse or a dependent. Whoever pays the loan is eligible to deduct the interest, subject to the following rules.

Most importantly, the IRS says that student loan interest may be deductible only if all of the following apply:

  • You paid interest on a qualified student loan in the tax year of the tax return
  • You’re legally obligated to pay interest on a qualified student loa

    “It is important to note that the legal borrower is the one who can get the deduction.  If a parent borrows money in a private loan, but the student makes the loan payments, the student is not entitled to the deduction.”Julie Strohlein, CPA

  • Your filing status is not married filing separately
  • Your modified adjusted gross income (MAGI) is less than the specified annual amount
  • You or your spouse (if filing jointly) could not be claimed as dependents on someone else’s tax return. (Under recent legislation, dependency exemptions are eliminated for 2018-2025.)

    “If a student is the borrower, and the student is a dependent of the parents, neither the student nor the parents can take the deduction no matter who makes the loan payments.” — Julie Strohlein, CPA

MAGI limit for deductions

The MAGI limit is indexed for inflation, although increases the last few years have been small or nonexistent. For 2018, the deduction is phased out for a MAGI between $65,000 and $80,000 for single filers or $135,000 and $165,000 of MAGI for joint filers. Once you exceed the upper threshold of this range, you can’t claim any deduction.

Due to the MAGI limits, students may have a better chance than their parents of salvaging some tax benefit for paying off student loan payments.

Call today with questions about the student loan interest deduction, or other tax deductions for your situation.

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